<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR QUARTER ENDED MARCH 31, 1997
--------------
COMMISSION FILE NUMBER 0-14620
-------
COMMUNITY BANKSHARES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
NEW HAMPSHIRE 02-0394439
------------- ----------
(STATE OF INCORPORATION (I.R.S. EMPLOYER
OR ORGANIZATION) IDENTIFICATION NO.)
43 NORTH MAIN STREET
CONCORD, NEW HAMPSHIRE 03301
----------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(ZIP CODE)
(603) 224-1100
--------------
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
---- ----
2,465,238 shares of Community Bankshares, Inc.'s Common Stock ($1.00 Par Value)
were outstanding as of March 31, 1997. Community Bankshares, Inc. has no other
classes of common stock.
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
--------------------
CONSOLIDATED BALANCE SHEETS
COMMUNITY BANKSHARES, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
--------------- ---------------
(DOLLARS IN THOUSANDS, EXCEPT
SHARE DATA)
(UNAUDITED)
<S> <C> <C>
ASSETS
Cash and due from banks......................... $ 22,709 $ 20,570
Interest-bearing deposits in other banks........ 4,227 90
Fed funds sold.................................. -- --
-------- --------
Total cash and cash equivalents............. 26,936 20,660
-------- --------
Securities available for sale--amortized cost
$83,956 at March 31, 1997 and $71,377
at December 31, 1996......................... 83,502 71,710
Securities held to maturity--fair value $43,350
at March 31, 1997 and $46,990 at December 31,
1996.......................................... 43,806 47,021
Federal Home Loan Bank stock.................... 4,579 4,571
Mortgage loans held for sale.................... 4,352 1,755
Loans........................................... 400,503 388,484
Allowance for loan losses....................... (4,088) (3,905)
-------- --------
Net loans................................... 396,415 384,579
-------- --------
Premises and equipment.......................... 9,923 9,923
Real estate acquired by foreclosure............. 1,112 738
Accrued interest receivable..................... 3,636 3,805
Other assets.................................... 6,384 5,834
-------- --------
Total assets................................ $580,645 $550,596
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Non-interest bearing demand.................. $ 54,193 $ 52,388
Savings...................................... 146,389 142,400
Time certificates............................ 210,103 200,999
-------- --------
Total deposits.............................. 410,685 395,787
Securities sold under agreements to
repurchase................................... 34,439 37,102
Other borrowed funds.......................... 83,927 71,786
Accrued interest payable...................... 1,581 1,463
Due to broker for security purchase........... 5,325 --
Other liabilities............................. 3,271 3,651
-------- --------
Total liabilities........................... 539,228 509,789
-------- --------
Stockholders' equity:
Preferred stock, $1.00 par value per
share; 1,000,000 shares authorized,
none issued.................................. -- --
Common stock, $1.00 par value per share;
4,500,000 shares authorized; issued and
outstanding 2,465,238 at March 31, 1997 and
2,448,931 at December 31, 1996............... 2,465 2,449
Additional paid-in capital.................... 22,391 22,266
Retained earnings............................. 16,875 15,945
-------- --------
41,731 40,660
Unrealized net gains (losses) on
securities available for sale, net........... (314) 147
-------- --------
Total stockholders' equity.................. 41,417 40,807
-------- --------
Total liabilities and stockholders'
equity..................................... $580,645 $550,596
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
COMMUNITY BANKSHARES, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
--------------------------
1997 1996
------------ ------------
(IN THOUSANDS, EXCEPT PER
SHARE DATA)
(UNAUDITED)
<S> <C> <C>
Interest and dividend income:
Loans................................. $ 8,940 $7,624
Securities available for sale......... 1,171 1,139
Securities held to maturity........... 702 715
Federal Home Loan Bank stock.......... 73 60
Fed funds sold and deposits in other
banks................................ 28 104
------- ------
Total interest and dividend income.. 10,914 9,642
------- ------
Interest expense:
Deposits.............................. 3,664 3,766
Borrowed funds........................ 1,537 976
------- ------
Total interest expense.............. 5,201 4,742
------- ------
Net interest and dividend income........ 5,713 4,900
Provision for loan losses............... 240 275
------- ------
Net interest and dividend income
after provision for loan losses.... 5,473 4,625
------- ------
Non-interest income:
Deposit account fees.................. 266 178
Gains on sales of investment
securities, net...................... 101 220
Gains on sales of loans, net.......... 201 196
Loan servicing income................. 345 379
Other................................. 385 114
------- ------
Total non-interest income........... 1,298 1,087
------- ------
Non-interest expense:
Salaries and employee benefits........ 2,263 1,945
Occupancy and equipment............... 861 650
Foreclosed property................... 49 25
FDIC deposit insurance premiums....... 13 1
Marketing............................. 151 114
Other................................. 1,333 1,194
------- ------
Total non-interest expense.......... 4,670 3,929
------- ------
Income before income taxes.............. 2,101 1,783
Income tax expense...................... 778 629
------- ------
Net income............................ $ 1,323 $1,154
======= ======
Earnings per common and common
equivalent share...................... $ 0.53 $ 0.47
Average number of common and common
equivalent shares outstanding......... 2,518 2,478
Dividends paid per share................ $ 0.16 $ 0.15
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
COMMUNITY BANKSHARES, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
---------------------
1997 1996
---------- ---------
(In Thousands)
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income.............................. $ 1,323 $ 1,154
Adjustments to reconcile net income to
net cash provided by (used in)
operating activities:
Provision for loan losses.............. 240 275
Depreciation and amortization.......... 192 294
Gains on sales of investment
securities, net....................... (101) (220)
Gains on sales of loans, net........... (201) --
Gains on sales of mortgage servicing
rights................................ (209) --
Gains on sales of premises and
equipment............................. -- (9)
Net (gains) losses on sales and loss
provisions on real estate acquired by
foreclosure........................... 2 (6)
Mortgage loans originated for sale..... (11,790) (14,450)
Mortgage loans sold.................... 9,193 13,476
(Increase) decrease in other assets.... (35) 1,806
Increase (decrease) in other
liabilities........................... (252) 520
--------- --------
Net cash provided by (used in)
operating activities................ (1,638) 2,840
--------- --------
Cash flows from investing activities:
Proceeds from sales of securities
available for sale..................... 7,607 13,334
Proceeds from sales of securities held
to maturity............................ -- --
Proceeds from maturities and principal
payments of securities held to
maturity............................... 3,243 8,388
Proceeds from maturities and principal
payments of securities available for
sale................................... 5,558 9,461
Purchase of securities held to maturity. -- (6,999)
Purchase of securities available for
sale................................... (20,320) (33,203)
Purchase of FHLB stock.................. (300) (136)
Redemption of FHLB stock................ 292 --
Net increase in loans................... (19,759) (19,082)
Proceeds from sales of automobile loans. -- 4,069
Proceeds from sales of mortgage loans... 7,824 --
Proceeds from sales of mortgage
servicing rights....................... 144 --
Capitalized expenses on real estate
acquired by foreclosure................ (99) --
Proceeds from disposition of real
estate acquired by foreclosure......... -- 274
Proceeds from sales of premises and
equipment.............................. -- 16
Additions to premises and equipment..... (400) (327)
--------- --------
Net cash used in investing
activities.......................... (16,210) (24,205)
--------- --------
Cash flows from financing activities:
Net increase (decrease) in time
certificates of deposit................ 9,104 (2,932)
Net increase (decrease) in demand, NOW,
savings and money market deposit
accounts............................... 5,794 7,862
Proceeds from borrowings................ 133,520 31,130
Repayments of borrowings................ (124,042) (18,297)
Repayments of liability relating to ESOP -- (39)
Proceeds from issuance of common stock.. 141 308
Dividends paid on common stock.......... (393) (261)
--------- --------
Net cash provided by financing
activities.......................... 24,124 17,771
--------- --------
Net increase (decrease) in cash and
cash equivalents.................... 6,276 (3,594)
Cash and cash equivalents at beginning
of period............................... 20,660 31,193
--------- --------
Cash and cash equivalents at end of
period.................................. $ 26,936 $ 27,599
========= ========
Supplemental cash flow information:
Cash paid for:
Income taxes, net...................... $ 804 $ 487
Interest............................... 5,083 4,809
Supplemental schedule of non-cash
activities:
Securities transferred from
available for sale to held to
maturity............................... $ -- $ --
Mortgage loans securitized during the
period................................. -- --
Additions to real estate acquired by
foreclosure............................ 277 51
Change in net unrealized gains (losses)
on securities available for sale, net.. (461) (650)
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
COMMUNITY BANKSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997 AND 1996
1. Basis of Presentation
---------------------
The unaudited consolidated financial statements of Community Bankshares, Inc.
and its wholly owned subsidiaries ("Community"); Concord Savings Bank
("Concord"), Concord's wholly owned subsidiary for residential mortgage lending,
Community Mortgage, Inc. and its wholly owned subsidiary for indirect lending,
Bancredit Corporation ("Bancredit"); and Centerpoint Bank ("Centerpoint"),
presented herein should be read in conjunction with the consolidated financial
statements of Community Bankshares, Inc. and subsidiaries as of and for the year
ended December 31, 1996. All significant intercompany accounts and transactions
have been eliminated in consolidation. Certain amounts in prior years have been
reclassified to conform with the current year's presentation.
2. Earnings Per Share
------------------
Earnings per share for the periods presented are based on the weighted average
number of common and common equivalent shares outstanding during each period.
3. Acquisition Agreement
---------------------
On March 24, 1997, Community entered into a definitive agreement with CFX
Corporation ("CFX") pursuant to which CFX will acquire Community and its
subsidiaries, Concord and Centerpoint. The agreement provides for the merger of
Community with CFX, followed by the merger of Concord and Centerpoint with CFX
Bank, a wholly owned banking subsidiary of CFX. Under the terms of the
agreement, each share of Community Common Stock will be exchanged for 2.2 shares
of CFX Common Stock, subject to adjustment in certain circumstances. In
connection with the transaction, Community has granted to CFX an option to
acquire up to 19.9% of the outstanding shares of Community Common Stock under
certain circumstances. The transaction, which is subject to regulatory and
shareholder approval by both CFX and Community, is expected to be consummated in
the third quarter of 1997.
4. Recent Accounting Developments
------------------------------
In June 1996, the Financial Accounting Standards Board issued SFAS No. 125,
Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities. SFAS No. 125 is effective for transfers and servicing of
financial assets and extinguishments of liabilities occurring after December 31,
1996 and is to be applied prospectively. However, SFAS No. 127, Deferral of the
Effective Date of Certain Provisions of SFAS No. 125, requires the deferral of
implementation as it relates to repurchase agreements, dollar-rolls, securities
lending and similar transactions until years beginning after December 31, 1997.
Earlier or retrospective application of this statement is not permitted. This
statement provides accounting and reporting standards for transfers and
servicing of financial assets and extinguishments of liabilities based on
consistent application of a financial-components approach that focuses on
control. It distinguished transfers of financial assets that are sales from
transfers that are secured borrowings.
In accordance with the above, Community applied the requirements of this
Statement effective January 1, 1997. Adoption of these statements has not had a
material impact on Community's financial position, results of operations or
liquidity.
5
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
-----------------------------------------------------------------------
OF OPERATIONS
-------------
FINANCIAL CONDITION
- -------------------
General
- -------
At March 31, 1997, total assets amounted to $580,645,000, an increase of
$30,049,000, or 5.5%, from $550,596,000 at December 31, 1996. This growth in
assets was primarily in loans, investment securities and interest bearing
deposits in other banks and was funded primarily with an increase in deposits,
securities sold under agreements to repurchase and other borrowed funds.
Total investment securities amounted to $127,308,000, or 21.9% of total assets,
at March 31, 1997 compared to $118,731,000, or 21.6% of total assets, at
December 31, 1996. At March 31, 1997, securities available for sale amounted to
$83,502,000, or 65.6% of total investment securities. Securities held to
maturity amounted to $43,806,000 and represented 34.4% of total investment
securities. The investment portfolio consists primarily of U.S. Treasury and
Agency securities, mortgage-backed securities guaranteed by the Federal Home
Loan Mortgage Corporation ("FHLMC") and the Federal National Mortgage
Association ("FNMA"), and to a lesser extent other mortgage-backed securities,
corporate bonds, municipal investments and marketable equity securities.
Total loans increased by $12,019,000, or 3.1%, from $388,484,000 at December 31,
1996 to $400,503,000 at March 31, 1997. Since December 31, 1996, Community has
experienced growth in commercial and consumer loans of approximately $8.5
million and $10.9 million, respectively. The commercial loan growth was
primarily to small businesses in the manufacturing, retail and service
industries and to professional associations. The growth in consumer loans was
primarily in indirect automobile loans which resulted from competitive pricing
to dealers located throughout the State of New Hampshire. This growth was
offset by a decline in the residential mortgage portfolio which resulted from a
sale of $7.6 million in one-year adjustable rate portfolio mortgage loans in
March 1997.
Total deposits amounted to $410,685,000 at March 31, 1997 which represented an
increase of $14,898,000, or 3.8% over the December 31, 1996 balance of
$395,787,000. Growth was experienced in non-interest bearing demand and savings
of $1,805,000 and $3,989,000, respectively and can be attributed to management's
strategy of building full-banking relationships with its customers.
Additionally, time certificates of deposit increased $9,104,000. This increase
was primarily the result of CD promotions.
Funding loan growth was the primary reason for the increase in borrowed funds of
$9,478,000 since December 31, 1996. Community's borrowed funds consist
primarily of Federal Home Loan Bank ("FHLB") advances and, to a lesser extent,
repurchase agreements.
At March 31, 1997, Community's stockholders' equity totaled $41,417,000,
resulting in an equity-to-assets ratio of 7.13%, a Tier 1 leverage ratio of
7.46% and a total risk-based capital ratio of 11.04%. Community's capital
ratios exceed all published regulatory minimums. For further information on the
capital ratios of Community and of Concord and Centerpoint, see the "Liquidity
and Capital Resources" section below.
Due to market conditions, Community's unrealized net gains (losses) on
securities available for sale, recorded net of applicable taxes as a component
of stockholders' equity, declined from an unrealized net gain of $147,000 at
December 31, 1996 to an unrealized net loss of $314,000 at March 31, 1997.
Changes in the market values of securities available for sale are reflected in
Community's balance sheet as increases or decreases in stockholders' equity.
RISK ELEMENTS
- -------------
At March 31, 1997, total non-performing assets amounted to $3,409,000, or 0.59%
of total assets compared to $2,418,000, or 0.44%, at December 31, 1996. The
majority of this increase was the result of a commercial and a commercial real
estate loan being placed on non-accrual. To a lesser extent, it was the result
of increases in real estate acquired through foreclosure during the quarter.
6
<PAGE>
Non-performing assets consist of non-performing loans, non-accrual loans
(including impaired loans), restructured loans and property or other assets
which have been acquired by foreclosure or repossession. Non-performing loans
increased to $2,088,000 or by 50% at March 31, 1997 from $1,392,000 at December
31, 1996. Foreclosed property and repossessed autos and mobile homes increased
to $1,321,000 at March 31, 1997 from $1,026,000 at December 31, 1996. At March
31, 1997, impaired loans, which are included in non-accrual loans in the table
below, amounted to $488,000 as compared to $505,000 at December 31, 1996.
The following table summarizes non-performing assets and loans delinquent 90
days or more and still accruing at the dates indicated.
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31, MARCH 31,
1997 1996 1996
---------- ------------- ----------
(In Thousands)
<S> <C> <C> <C>
Non-accrual loans....................... $2,088 $1,392 $1,544
Restructured loans...................... -- -- --
------ ------ ------
Total non-performing loans............ 2,088 1,392 1,544
------ ------ ------
Real estate acquired by foreclosure..... 1,112 738 349
Other assets acquired................... 209 288 390
------ ------ ------
Total assets acquired toward
satisfaction of debt................. 1,321 1,026 739
------ ------ ------
Total non-performing assets............. 3,409 2,418 2,283
Loans delinquent 90 days or more and
still accruing......................... 131 169 76
------ ------ ------
Total non-performing assets and loans
delinquent 90 days or more and still
accruing............................. $3,540 $2,587 $2,359
====== ====== ======
Total non-performing assets as a
percentage of total loans and assets
acquired toward satisfaction of debt.. .85% 0.62% 0.67%
</TABLE>
Community's provision for loan losses amounted to $240,000 for the three months
ended March 31, 1997, bringing the allowance to $4,088,000 after net charge-offs
of $57,000 for the three months ended March 31, 1997. At March 31, 1997, the
allowance for loan losses represented 1.02% of total loans in comparison to
1.01% of total loans at December 31, 1996. At March 31, 1997, the allowance for
loan losses represented 195.8% of non-performing loans of $2,088,000 versus
280.5% of non-performing loans of $1,392,000 at December 31, 1996.
The allowance for loan losses is maintained at a level believed by management to
be adequate to meet reasonably foreseeable loan losses on the basis of many
factors including the risk characteristics of the portfolio, underlying
collateral, current and anticipated economic conditions that may affect the
borrower's ability to pay, specific problem loans and trends in loan
delinquencies and charge-offs. Losses on loans are provided for under the
allowance method of accounting. The allowance is increased by provisions
charged to earnings and reduced by loan charge-offs, net of recoveries. Loans,
including impaired loans, are charged-off in whole or in part when, in
management's opinion, collectibility is remote.
While management uses available information to establish the allowance for loan
losses, future additions to the allowance may be necessary based on changes in
economic conditions. In addition, various regulatory agencies, as an integral
part of their examination process, periodically review Concord's and
Centerpoint's allowance for loan losses. Such agencies may require Concord and
Centerpoint to recognize additions to the allowance based on their judgments
about information available to them at the time of their examination.
7
<PAGE>
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED
------------------------------------------------
MARCH 31, 1997 AND 1996
-----------------------
RESULTS OF OPERATIONS
- ---------------------
Community earned net income of $1,323,000, or $0.53 per share, for the three
months ended March 31, 1997. Comparable amounts for the three months ended
March 31, 1996 equaled $1,154,000, or $0.47 per share.
AVERAGE BALANCE SHEETS AND NET INTEREST AND DIVIDEND INCOME
- -----------------------------------------------------------
The following table sets forth certain information relating to Community's
average balance sheets, including interest-earning assets, interest-bearing
liabilities and net interest income on a fully tax-equivalent basis for the
three month periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
1997 1996
------------------------------ ------------------------------
AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST RATE (5) BALANCE INTEREST RATE (5)
---------- -------- -------- ---------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Assets:
Interest-earning assets:
Loans(1)............................... $399,410 $ 8,940 9.08% $335,292 $7,624 9.10%
Investments(2)......................... 125,338 1,983 6.33 129,809 2,023 6.23
-------- ------- -------- ------
Total interest-earning assets........ 524,748 10,923 8.44 465,101 9,647 8.30
------- ------
Non interest-earning assets............. 37,283 32,882
Allowance for loan losses............... (3,944) (3,692)
-------- --------
Total assets......................... $558,087 $494,291
======== ========
Liabilities and Stockholders' Equity:
Interest-bearing liabilities:
Deposits............................... $350,776 $ 3,664 4.24 $343,955 $3,766 4.38
Borrowed funds......................... 113,874 1,537 5.47 70,653 976 5.53
-------- ------- -------- ------
Total interest-bearing liabilities... 464,650 5,201 4.54 414,608 4,742 4.57
------- ------
Non interest-bearing demand deposits.... 45,983 37,198
Other liabilities....................... 6,166 4,909
-------- --------
Total liabilities.................... 516,799 456,715
Stockholders' equity.................... 41,288 37,576
-------- --------
Total liabilities and stockholders'
equity............................. $558,087 $494,291
======== ========
Net interest income/interest rate
spread(3).............................. $ 5,722 3.90% $4,905 3.73%
======= ==== ====== ====
Net interest margin(4).................. 4.42% 4.22%
==== ====
</TABLE>
(1) Includes non-accrual loans.
(2) Investments (includes interest bearing deposits in other banks and fed
funds sold) are shown at average amortized cost.
(3) Interest rate spread is the average yield earned on total earning assets
less the average cost paid for interest-bearing liabilities.
(4) The net interest margin during the period equals net interest income
divided by average interest-earning assets for the period.
(5) Calculated on an annualized basis.
8
<PAGE>
RATE/VOLUME ANALYSIS
- --------------------
The following table presents changes in interest and dividend income, interest
expense and net interest and dividend income, on a fully tax-equivalent basis,
which are attributable to changes in the average amounts of interest-earning
assets and interest-bearing liabilities outstanding and/or to changes in rates
earned or paid thereon. The net changes attributable to both volume and rate
have been allocated proportionately.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, 1997 VS. 1996
---------------------------
INCREASE (DECREASE)
DUE TO
---------------------------
VOLUME RATE TOTAL
-------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Interest and dividend income:
Loans............................. $1,437 $(121) $1,316
Investments....................... (70) 30 (40)
------ ----- ------
Total interest and dividend income.. 1,367 (91) 1,276
------ ----- ------
Interest expense:
Deposits.......................... 74 (176) (102)
Borrowed funds.................... 584 (23) 561
------ ----- ------
Total interest expense.............. 658 (199) 459
------ ----- ------
Net interest and dividend income.... $ 709 $ 108 $ 817
====== ===== ======
</TABLE>
INTEREST INCOME
- ---------------
Total interest and dividend income, on a fully tax-equivalent basis, increased
by $1,276,000 for the three months ended March 31, 1997 over amounts earned for
the same period of the prior year. This increase is primarily due to an
increase in average loans outstanding offset by a slight decrease in average
loan yield. The average balance of loans outstanding for the three months ended
March 31, 1997 amounted to $399,410,000, an increase of $61,683,000 from the
same period of the previous year, resulting in an increase of interest and fee
income on loans due to volume of $1,437,000. This increase was partially offset
by a reduction in interest income due to rate of $121,000.
INTEREST EXPENSE
- ----------------
Total interest expense for the three months ended March 31, 1997 increased by
$459,000 as compared with the same period of the prior year. This increase
resulted primarily from an increase in average borrowed funds outstanding
partially offset by a decrease in interest rates paid on deposits. Community
used borrowed funds as a funding alternative for loan growth which resulted in
an increase in average outstanding borrowings of $43,221,000 for the three
months ended March 31, 1997. This utilization of borrowed funds resulted in an
increase in interest expense due to volume of $584,000. For the three months
ended March 31, 1997, the average interest rate was 5.47% as compared with 5.53%
at March 31, 1996, resulting in a reduction in interest expense on borrowings
due to rate of $23,000.
The average yield on interest bearing deposits for the three months ended March
31, 1997 was 4.24% compared to 4.38% for the same period of the prior year,
resulting in a decline in interest expense due to rate of $176,000. Offsetting
this decline was a rise in interest expense of $74,000 due to volume resulting
from an increase in average deposit balances of $6,821,000 when compared with
the same period last year.
PROVISION FOR LOAN LOSSES
- -------------------------
Community made a provision of $240,000 for the three months ended March 31, 1997
into the allowance for loan losses compared to $275,000 for the comparable
period of the prior year. Net loan charge-offs for the current quarter equaled
$57,000 as compared to $176,000 for the same period of the prior year. The
decrease in the provision for loan losses was the result of a large commercial
loan recovery received in the first quarter of 1997.
9
<PAGE>
NON-INTEREST INCOME
- -------------------
Non-interest income for the three months ended March 31, 1997 increased by
$211,000 from the same period last year.
Increased transaction activity and numbers of accounts were the primary reasons
for the growth of $88,000 in deposit account fees for the three months ended
March 31, 1997 when compared to the same period of the prior year. Community
also revised its deposit account fee schedule during December 1996.
Community recorded $101,000 in security gains for the three months ended March
31, 1997 compared to $220,000 for the same period of the prior year.
Loan servicing income decreased by $34,000 for the three months ended March 31,
1997 as compared with the same period of the prior year. This decrease resulted
primarily from declining balances of mortgage loans serviced.
Other non-interest income increased by $271,000 for the three months ended March
31, 1997 as compared with the same period of the prior year. This increase can
be directly attributable to the sale of mortgage servicing rights in March 1997
as well as income received from Household Finance Corporation ("HFC"). In
October 1996, Community formed an alliance to originate for immediate resale
without recourse lesser quality auto loans on behalf of HFC, a nationally
recognized orginator and servicer of this product.
NON-INTEREST EXPENSE
- --------------------
Non-interest expense for the three months ended March 31, 1997 increased by
$741,000 over the same period of the prior year. The increase in non-interest
expense was primarily due to branch expansion and Community's continued
investment to expand its business lines and product distribution system,
increased marketing and normal increases related to salaries and benefits and
other operating expenses. Since March 1996, Community has opened offices in
Portsmouth and Hooksett, New Hampshire, opened new remote automated cash
dispensing machines at 16 of the Walmart and Sam's Club stores in New Hampshire
and expanded its commercial and indirect consumer lending capacity.
INCOME TAXES
- ------------
Income tax expense for the three months ended March 31, 1997 and 1996 amounted
to $778,000 and $629,000, respectively. The effective tax rate for 1997 was 37%
compared to 35% in 1996. The increase in the effective tax rate for the current
year was primarily the result of an increase in state tax liability due to
higher earnings.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Liquidity is a measure of Community's ability to meet its cash needs at a
reasonable cost. Cash needs arise primarily as a result of funding lending
opportunities, the maturity of liabilities such as borrowings and the withdrawal
of deposits. Asset liquidity is achieved through the management of earning
asset maturities, loan amortization, deposit growth, periodic loan sales and
access to borrowed funds. Management believes that funding sources are adequate
to meet commitments and ongoing obligations.
Community's funding requirements are limited and are adequately satisfied by
dividends from Concord and Centerpoint and by its interest-bearing cash deposit
with Concord. Dividends paid from Concord and Centerpoint to Community are
limited to the extent necessary for Concord and Centerpoint to comply with
regulatory capital guidelines.
Concord and Centerpoint are members of the FHLB, which makes substantial
borrowings available to its members. At March 31, 1997, FHLB borrowings totaled
$83,684,000 with approximately $20,000,000 available in unused borrowing
capacity at the FHLB to meet future large deposit fluctuations or increased loan
demands should either occur.
10
<PAGE>
Community is regulated by the Federal Reserve Board, which requires Community to
maintain minimum risk-based capital ratios. The minimum Tier 1 and total risk-
based capital ratios required are 4% and 8%, respectively. To complement the
risk-based guidelines, the Federal Reserve Board requires a minimum leverage
ratio of 4%, which represents the minimum capital to total asset standard for
bank holding companies. Federal banking agencies, including the Federal Deposit
Insurance Corporation ("FDIC"), require similar leverage ratios for banks. At
March 31, 1997, Community had equity capital of $41,417,000, resulting in an
equity-to-assets ratio of 7.13%.
The following table summarizes Community's regulatory capital ratios as of March
31, 1997.
<TABLE>
<CAPTION>
REQUIRED ACTUAL
REGULATORY REGULATORY
RATIO RATIO
----------- -----------
<S> <C> <C>
Leverage................................ 4.00% 7.46%
Risk-based:
Tier 1................................ 4.00 10.06
Total risk-based...................... 8.00 11.04
</TABLE>
The following table summarizes Concord's regulatory capital ratios as
of March 31, 1997.
<TABLE>
<CAPTION>
REQUIRED ACTUAL
REGULATORY REGULATORY
RATIO RATIO
---------- ----------
<S> <C> <C>
Leverage................................ 4.00% 7.01%
Risk-based:
Tier 1................................ 4.00 9.63
Total risk-based...................... 8.00 10.60
</TABLE>
The following table summarizes Centerpoint's regulatory capital ratios as
of March 31, 1997.
<TABLE>
<CAPTION>
REQUIRED ACTUAL
REGULATORY REGULATORY
RATIO RATIO
---------- ----------
<S> <C> <C>
Leverage................................ 4.00% 7.28%
Risk-based:
Tier 1................................ 4.00 9.34
Total risk-based...................... 8.00 10.39
</TABLE>
11
<PAGE>
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
-----------------
Community is not a party to any material pending legal proceedings other than
ordinary routine litigation incidental to its business. Management believes
that the resolution of these matters will not materially affect the business or
the consolidated financial condition or results of operations of Community and
its subsidiaries.
ITEM 2 - CHANGES IN SECURITIES
---------------------
Not applicable
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
-------------------------------
Not applicable
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
Not applicable
ITEM 5 - OTHER INFORMATION
-----------------
Not applicable
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(a) Exhibits
12
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit Method of Filing
- ------- ---------------------- ----------------
<S> <C> <C>
3.1 Restated Articles of Incorporated by reference
Incorporation of to Exhibit 3.1(b) to
Community Bankshares, Amendment No. 1 to
Inc. Registration Statement on
Form S-1 (File No.
33-00125) (the
"Registration Statement")
3.1(a) Statement of Incorporated by reference
Resolution to Exhibit 3.1(a) to
establishing series Annual Report on Form
of shares of 10-K for the year ended
Community Bankshares, June 30, 1991
Inc. dated October
27, 1989
3.1(b) Articles of Amendment Incorporated by reference
to the Restated to Exhibit 3.1(b) to
Articles of Quarterly Report on Form
Incorporation of 10-Q for the quarter ended
Community Bankshares, March 31, 1996
Inc.
3.2 By-laws of Community Incorporated by reference
Bankshares, Inc. as to Quarterly Report on
currently in effect Form 10-Q for the quarter
ended September 30, 1995
4.1 Loan Agreement dated Incorporated by reference
September 22, 1986 to Exhibit 4 to Annual
between the Savers Report on Form 10-K for
Bank and the Trustee year ended June 30, 1986
of the Concord
Savings Bank
Employees Stock
Ownership Plan, with
related Note and
Pledge Agreement
4.2 Amendment to Loan Incorporated by reference
Agreement between the to Exhibit 4.2 to
Savers Bank and the Quarterly report on Form
Trustee of the 10-Q for quarter ended
Concord Savings Bank March 31, 1988
Employee Stock
Ownership Plan, dated
January 25, 1988
4.3 Rights Agreement Incorporated by reference
between Community to Form 8-A filed June 30,
Bankshares, Inc. and 1989
the First National
Bank of Boston
4.4 Community Bankshares, Incorporated by reference
Inc. Dividend to Form S-3 (File No.
Reinvestment and 33-87956) filed December
Stock Dividend Plan, 28, 1994
dated December 28,
1994
10.2(a) Concord Savings Bank Incorporated by reference
1985 Stock Option to Exhibit 10.2 to
Plan, as amended * Amendment No. 3 to
Registration Statement
10.2(b) Amendment to said Incorporated by reference
Stock Option Plan to Exhibit 10.2(b) to
adopted August 18, Annual Report on Form 10-K
1987* for year ended June 30,
1987
10.3 Concord Savings Bank Incorporated by reference
1988 Stock Option to Exhibit A to Proxy
Plan * Statement for Annual
Meeting of Stockholders
held on October 20, 1988
10.4 Executive Incorporated by reference
Supplemental to Exhibit 10.8 to the
Retirement Agreement Quarterly Report on Form
with Douglas 10-Q for quarter ended
Crichfield * September 30, 1988
10.5 Form of Severance Incorporated by reference
Benefits Agreement to Exhibit 10.9 to Annual
with Douglas Report on Form 10-K for
Crichfield dated year ended June 30, 1989
August 1, 1988 *
10.5 (a) Amendment of Form of Incorporated by reference
Severance Benefits to Exhibit 10.9(a) to
Agreement with Annual Report on Form 10-K
Douglas Crichfield for year ended June 30,
dated April 19, 1989 * 1989
10.6 Form of Severance Incorporated by reference
Benefits Agreement to Exhibit 10.10 to Annual
with Donna L. Bean * Report on Form 10-K for
year ended June 30, 1989
10.7 Form of Severance Incorporated by reference
Benefits Agreement to Exhibit 10.11 to Annual
with Gerald R. Emery * Report on Form 10-K for
year ended June 30, 1989
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit Method of Filing
- ------- ---------------------- ------------------
<S> <C> <C>
10.7(a) Amendment of Form of Incorporated by reference
Severance Benefits to Exhibit 10.7(a) to
Agreement with Gerald Annual Report on Form 10-K
R. Emery dated for year ended June 30,
December 30, 1992 * 1993
10.8 Form of Severance Incorporated by reference
Benefits Agreement to Exhibit 10.12 to Annual
with David E. Fuller * Report on Form 10-K for
year ended June 30, 1989
10.9 Form of Severance Incorporated by reference
Benefits Agreement to Exhibit 10.13 to Annual
with Robert F. Howe * Report on Form 10-K for
year ended June 30, 1989
10.10 Form of Severance Incorporated by reference
Benefits Agreement to Exhibit 10.11 to Annual
with Paul M. Ferguson Report on Form 10-K for
* year ended June 30, 1991
10.10(a) Amendment of Form of Incorporated by reference
Severance Benefits to Exhibit 10.11(a) to
Agreement with Paul Annual Report on Form 10-K
M. Ferguson dated for year ended June 30,
December 30, 1992 * 1993
10.11 Form of Severance Incorporated by reference
Benefits Agreement to Exhibit 10.12 to Annual
with Charles E. Report on Form 10-K for
Gorhan * year ended June 30, 1991
10.12 Form of Severance Incorporated by reference
Benefits Agreement to Exhibit 10.14 to Annual
with Margaret A. Report on Form 10-K for
Flint * year ended June 30, 1991
10.13 Community Bankshares, Incorporated by reference
Inc. 1992 Stock to Exhibit A to Proxy
Option Plan * Statement for Annual
Meeting of Stockholders
held on October 15, 1992
10.14 Agreement and Plan of Incorporated by reference
Merger by and between to Annex A of the Proxy
Community and Statement-Prospectus
Centerpoint Bank, included in Registration
dated as of August Statement on Form S-4
28, 1995 (File No. 33-63443) (the
"S-4 Registration
Statement")
10.15 Employment Agreement Incorporated by reference
between Centerpoint to the S-4 Registration
Bank and Philip Statement
Stone, dated August
29, 1995. *
10.16 Employment Agreement Incorporated by reference
between Centerpoint to the S-4 Registration
Bank and Lucy T. Statement
Gobin, dated August
29, 1995 *
10.17 Employment Agreement Incorporated by reference
between Centerpoint to the S-4 Registration
Bank and Joseph B. Statement
Reilly, dated August
29, 1995 *
10.18 Centerpoint Bank 1989 Incorporated by reference
Stock Option Plan * to Exhibit 10.20 to
Transition Report on Form
10-K for the six months
ended December 31, 1995
10.19 Form of Severance Incorporated by reference
Benefits Agreement to Exhibit 10.20 to Annual
with John C. Baity, Report on Form 10-K for
Jr. * year ended December 31,
1996
10.20 Agreement and Plan of Incorporated by reference
Reorganization dated to Exhibit 2.2 to the
March 24, 1997 Annual Report on Form 10-K
between CFX for the Year Ended
Corporation and December 31, 1996 filed by
Community Bankshares, CFX Corporation
Inc., including Plan
of Share Exchange and
Agreement and Plan of
Merger among Concord
Savings Bank,
Centerpoint Bank and
CFX Bank
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit Method of Filing
- ------ ----------------------- ----------------
<S> <C> <C>
10.21 Stock Option Incorporated by reference
Agreement dated March to Exhibit 99.3 to the
24, 1997 between CFX Annual Report on Form 10-K
Corporation and for the Year Ended
Community Bankshares, December 31, 1996 filed by
Inc. CFX Corporation
11 Statement re Filed herewith
computation of
Income per share
21.1 Subsidiaries of Incorporated by reference
Community Bankshares, to Exhibit 21.1 to the
Inc. Annual Report on Form 10-K
for the Year Ended
December 31, 1996
27 Financial Data Filed herewith
Schedule
99 Joint press release Incorporated by reference
issued by CFX to Exhibit 99.2 to the
Corporation and Annual Report on Form 10-K
Community Bankshares, for the Year Ended
Inc., dated March 24, December 31, 1996 filed by
1997 CFX Corporation
* indicates
management contract
or compensatory plan
</TABLE>
(b) Reports on Form 8-K
Community has not filed any reports on Form 8-K during the quarter ended March
31, 1997.
15
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
<TABLE>
<CAPTION>
COMMUNITY BANKSHARES, INC.
<S> <C> <C>
Name Title Date
- --------------------------------------------------------------------------------
/s/ Douglas Crichfield President and Chief Executive Officer May 15, 1997
- ---------------------------
Douglas Crichfield
/s/ John C. Baity, Jr. Treasurer and Chief Financial Officer May 15, 1997
- ---------------------------
John C. Baity, Jr. (Principal Financial and Chief
Accounting Officer)
</TABLE>
16
<PAGE>
EXHIBIT 11
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1997 1996
----------------- -----------------
(In thousands except per share data)
<S> <C> <C>
Net income $1,323 $1,154
Primary average common and common 2,518 2,478
equivalent shares
Primary earnings per common and common $ 0.53 $ 0.47
equivalent share
Fully diluted average common and common 2,518 2,478
equivalent shares
Fully diluted earnings per common and $ 0.53 $ 0.47
common equivalent share
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10Q AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 22,709
<INT-BEARING-DEPOSITS> 4,227
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 83,502
<INVESTMENTS-CARRYING> 43,806
<INVESTMENTS-MARKET> 43,350
<LOANS> 400,503
<ALLOWANCE> (4,088)
<TOTAL-ASSETS> 580,645
<DEPOSITS> 410,685
<SHORT-TERM> 118,366
<LIABILITIES-OTHER> 10,177
<LONG-TERM> 0
0
0
<COMMON> 2,465
<OTHER-SE> 38,952
<TOTAL-LIABILITIES-AND-EQUITY> 580,645
<INTEREST-LOAN> 8,940
<INTEREST-INVEST> 1,946
<INTEREST-OTHER> 28
<INTEREST-TOTAL> 10,914
<INTEREST-DEPOSIT> 3,664
<INTEREST-EXPENSE> 5,201
<INTEREST-INCOME-NET> 5,713
<LOAN-LOSSES> 240
<SECURITIES-GAINS> 101
<EXPENSE-OTHER> 4,670
<INCOME-PRETAX> 2,101
<INCOME-PRE-EXTRAORDINARY> 2,101
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,323
<EPS-PRIMARY> .53
<EPS-DILUTED> .53
<YIELD-ACTUAL> 4.42
<LOANS-NON> 2,088
<LOANS-PAST> 131
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 3,905
<CHARGE-OFFS> 280
<RECOVERIES> 223
<ALLOWANCE-CLOSE> 4,088
<ALLOWANCE-DOMESTIC> 4,088
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
